Grey Management in Chinese Leadership

by

Professor Xiaobo Wu

Dean, School of Management, Zhejiang University

China is in a period of transition marked by rapid changes in market environments, regulations, knowledge and technology. This has implications for leaders as they try to navigate a rapidly changing environment and sustain their organisations’ growth and development. Professor Xiaobo Wu of Zhejiang University, China, looks at how Chinese technology firm Huawei has utilised the concept of grey management to see it through periods of transition.

Periods of transition and change act as bridges between different kinds of systems. These periods call for a style of leadership that is equally transitional. Transitional leadership is required when an organisation moves from a centralised model to a more participatory, democratic one. A leader during a period of transition cannot be the capable manager of a hierarchical, centralised organisation that exists in a planned economy, nor can the leader be the strategic decisionmaker required in a market economy. Instead, the transitional leader should be a hybrid of both and base their leadership on trust and mutual understanding.

Transitional leadership, which is balanced between two extremes, can be embodied by the Chinese concept of yin and yang. In Chinese philosophy, there is a saying: “Alternating between Yin and Yang is called Tao”. Yin and Yang are two apparently opposing forces that are actually interwoven: someone who can balance both elements has found their Tao, or way of life. In the domain of management, striking a harmonious balance between Yin and Yang can be seen as finding a middle ground between black and white. Although the middle of black and white may seem chaotic, transitional leaders have the capacity to impose order through clear, explicit directions. This is otherwise referred to as grey management.

The Grey Management of Huawei

Chinese multinational, Huawei is one of the world’s largest suppliers of telecommunications equipment and mobile phones. Its CEO, Ren Zhengfei, has long identified grey management as a principle of his leadership and employed it to provide his firm with a clear direction. Huawei uses this grey management approach to create a strategic framework when dealing with dynamic situations, enabling the organisation to systematically integrate seemingly paradoxical or competing factors. Ren has described grey management as being Huawei’s ‘tree of life’, and grey management is a principle that is well established in Huawei’s organisational routines and strategic activities. Within this framework, Ren has repeatedly stressed the four key principles that he adheres to.

Huawei's Four Principles of Grey Management

1. Openness

Firms should look beyond their home markets to international networks and business ecosystems. Openness allows Chinese organisations to learn from their competitors and the developed markets. It is only through openness that firms can develop new targets, discover gaps in the market and create a sense of urgency. This process of learning, transferring knowledge and innovation helped Huawei become the world’s largest applicant for international patents in 2014. Openness also provides direct access to customers, which can in turn help firms to clearly understand their customer’s demands.

By following the principle of openness, Huawei makes 75% of its revenue overseas. Transitional leadership should facilitate organisation-wide learning to both increase the firm’s own capabilities and offset weaknesses by acquiring complementary resources from the company’s partners.

2. Tolerance

The practice of allowing dissent within an organisation as a strategic reserve is a philosophy to which Ren adheres. To promote self-assessment and self-criticism Huawei promotes a culture of tolerance within the firm by encouraging dissenting voices. Ren even created an internal group within Huawei that deliberately challenges the organisation’s systems and direction. He argues that only employees who can find Huawei’s weaknesses can improve the organisation. Huawei also has a high tolerance for trial and error. Although 10% of its revenue is invested in R&D, Huawei also tolerates a high level of failure in this area. This is one of the factors in Huawei being recognised as one of the 100 most innovative organisations globally in 2014 by Thompson Reuters.

3. Compromise

Part of the grey management process is fine-tuning direction. This means compromising and making appropriate trade-offs, such as giving up on minor goals to focus on the primary target. For example, Huawei announced that it would not be focusing on the US market due to lack of market opportunities, but continued to invest time and attention on the European market.

4. Pragmatism

The starting point of grey management is pragmatism. For Huawei, pragmatism is more likely to result in incremental innovation. As Ren argues, the purpose of a brand’s innovation is: “Not to win Nobel prizes, or plaudits in the media for the coolness of its products, but to create value for customers.”

Grey Management and Transition

At its best, grey management gives leaders the framework to solve disordered and chaotic environments by applying ordered principles, and the power to turn seemingly paradoxical elements into an impetus for growth and development.

In Huawei, grey management provides the company with the equilibrium it needs to survive in the turbulent environments of transition and foreign expansion. This equilibrium is found in at least four dimensions:

Ambidexterity in R&D:When facing the paradoxes of exploration vs exploitation, Huawei utilises the grey management technique of tolerance and pragmatism. Huawei optimises existing products, but also increases R&D investment into new products.

Coopetition with competition:When dealing with the paradox of facing global organisations that could either be competitors or partners, Huawei uses the grey management technique of openness. It pursues a policy of ‘coopetition’ — collaborating with its competition in the hope of mutually beneficial results — by protecting its own innovations, but cooperating with global partners to drive overall profitability.

Optimising internal structures: When confronted with the paradox of differing organisational structures, Huawei uses the grey management technique of openness and tolerance. The firm keeps an open mind to learn and absorb knowledge, and insists on self-assessment and self-criticism to try and constantly improve.

Cultural integration:To cope with the paradox of Western management practices meeting Eastern culture, Huawei employs the grey management concept of openness and compromise. It learnt from advanced Western management systems, but made incremental changes and adjustments, while also keeping Chinese-style beliefs, to form Huawei’s system of management.

Chinese Leadership and Grey Management

Leadership during transitional periods requires leaders to possess the kind of strategic thinking that can balance and link two different stages of development. A leader’s personal values and the decisions they make are crucial to firms’ growth during times of change. Huawei’s grey management techniques could be a viable form of leadership during a transitional period. Grey management aims to provide leaders with a harmonious framework in which to survive a transitional period and thus mitigate uncertainty, turbulence and risks.

Chinese leadership during periods of transition should draw on traditional Chinese culture, absorb analytical and competitive minds, and form an integrated, innovative way of thinking. All of these embody the compromise of Yin and Yang, the essence of grey management.